Misappropriation of Trade Secrets — Fighting What’s Unfair

  • On April 06, 2011, E.I. DuPont de Nemours & Co. filed a lawsuit against USA Performance Technology Inc. and two individuals for allegedly misappropriating trade secrets and proprietary information related to the company’s titanium technologies business.  The diversified manufacturing and science group, which is the largest manufacturer of titanium dioxide, filed the suit in U.S. Federal Court in California. The suit seeks an injunction requiring the return of all alleged misappropriated confidential or trade secret information and prohibiting the use or release of the company’s proprietary information.   The suit also seeks unspecified monetary damages and fees and costs, DuPont said.
  • On May 26, 2011, PayPal Filed a trade secret lawsuit against Google and two former employees. PayPal’s lawsuit against Google alleged that a one-time key PayPal employee who was working on mobile payments for the Internet funds transfer company left for Google (which has launched its own mobile payment system), and on his way out the door misappropriated PayPal trade secrets. The suit was filed in state court in California’s Santa Clara County, which includes much of Silicon Valley. The suit also claimed that another Googler and former PayPal employee violated her agreement with PayPal by recruiting the other employee.

These high-profile cases are just two of the most notable among thousands of similar cases that get filed annually in America’s courts in the never-ending cycle of business litigation.

While our attorneys at Hornberger & Brewer focus our practice on business disputes of any type, e.g., breach of contract, fraud, interference with contract and and all other business related torts, we have a particular affinity for misappropriation of trade secrets.

A trade secret may consist of any formula, pattern, device, or compilation of information which is used in business and which gives the business an opportunity to obtain an advantage over competitors who do not know how to use it.

Trade secret misappropriation can be thought of as a type of unfair competition — and our firm is always interested in fighting against what is unfair.

Trade Secrets Fragile

A trade secret is defined as any valuable business information that is not generally known and is subject to reasonable efforts to preserve confidentiality.

Generally speaking, a trade secret will be protected from exploitation by those who either obtain access through improper means, those who obtain the information from someone who they know or should have known gained access through improper means, or those who breach a promise to keep the information confidential. While virtually every business has at least some trade secrets, these secrets are quite fragile because they protect hidden information and resources, which necessarily means that protection is lost if and when the secret becomes publicly known.

For that reason, when other forms of intellectual property protection are available, such as copyright or patent protection, one should carefully weigh the benefits of relying on trade secret protection.

California Code

California has strong legal protections for workers that choose to move from one company to a competitor. State courts have generally refused to enforce the kind of “non-compete” agreements that are common in many other states. However, California also has strong trade secret laws, which include tough penalties. So sometimes trade secret laws are used as a weapon to attempt to control the movement of key employees.

California’s Civil Code defines a trade secret as consisting of information, including a formula, pattern, compilation, program, device, method, technique or process that:

  1. derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
  2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

In most states, to state a claim for misappropriation of trade secrets, a party must show that:

  1. the information incorporates a trade secret;
  2. the party took reasonable steps to preserve the secrecy of the trade secret; and
  3. the defendant misappropriated the secret or used improper means, in breach of a confidential relationship, to acquire the trade secret.

Trade secret protection derives from state law and therefore varies by jurisdiction. Federal law generally does not preempt or apply to state law claims involving trade secrets.

However, states may not offer patent-like protection to intellectual creations which otherwise remain unprotected as a matter of federal law.

Therefore, anything that does not fall within the domain of patent or copyright law may be protectable as a trade secret under state law.

U.S. Law

U.S. law defines a trade secret as:  all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if–

  1. the owner thereof has taken reasonable measures to keep such information secret; and
  2. the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.

The abundance of state and federal laws dealing with trade secret litigation makes it is easy to understand why companies so often resort to the courts for resolution of these disputes.

The best way to protect yourself in these kinds of cases is to hire legal representation that has the knowledge and experience to get you the results you desire.

Disputes naturally arise in business relationships, often with significant consequences to core issues such as revenue, competitive position, or client relationships. Let our trial lawyers at Hornberger & Brewer fight your business and commercial litigation battles.

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